Allegion PLC (ALLE) Q1 2019 Earnings Call Transcript
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Allegion PLC (NYSE: ALLE)
Q1 2019 Earnings Call
April 25, 2019, 8:00 a.m. ET
Contents:
Prepared Remarks
Questions and Answers
Call Participants
Prepared Remarks:
Operator
Good morning, and welcome to Allegion's First Quarter 2019 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note, this event is being recorded.
I'd now like to turn the conference over to host today Michael Wagnes, Vice President, Investor Relations and Treasurer. Please go ahead, sir.
Michael Wagnes -- Vice President of Investor Relations and Treasurer
Thank you, Keith. Good morning, everyone. Welcome, and thank you for joining us for Allegion's First Quarter 2019 Earnings Call. With me today are Dave Petratis, Chairman, President and Chief Executive Officer; and Patrick Shannon, Senior Vice President and Chief Financial Officer of Allegion. Our earnings release, which was issued earlier this morning, and the presentation, which we will refer to in today's call are available on our website at allegion.com. This call will be recorded and archived on our website.
Please go to Slides number 2 and 3. Statements made in today's call that are not historical facts are considered forward-looking statements and are made pursuant to the safe harbor provisions of federal securities law. Please see our most recent SEC filings for a description of some of the factors that may cause actual results to differ materially from our projections. The Company assumes no obligation to update these forward-looking statements.
Today's presentation and commentary include non-GAAP financial measures. Please refer to the reconciliation in the financial tables of our press release for further details. Dave and Patrick will now discuss our first quarter 2019 results, which will be followed by a Q&A session. For the Q&A, we ask each caller to limit themselves to one question and one follow-up and then reenter the queue. We will do our best to get to everyone, given the time allotted.
Please go to Slide 4, and I'll turn the call over to Dave.
David D. Petratis -- Chairman, Chief Executive Officer and President
Thanks, Mike. Good morning, and thank you for joining us today. Allegion got out of the starting gate with a good quarter, that has positioned us to deliver on our 2019 commitments. We have solid top-line revenue growth in the first quarter, which benefited from strength in the Americas and from the Gainsborough acquisition in the Asia Pacific region.
The Americas growth was driven by the non-residential business as end market fundamentals continue to be positive, particularly in institutional verticals. Pricing was also strong for the Company led by the Americas region. Electronics growth with -- had almost 10% for the quarter, which was lower than the growth rates we experienced in 2018. While growth improved sequentially from the last quarter, our product portfolio and new market partnerships will drive even better growth in the coming quarters. Allegion's combination of brands, expanded product portfolio, technical partnerships and continuously evolving channel relationships give us a great opportunity to take advantage of this market as it develops. For the full year 2019, we expect the Americas electronics growth rate to be similar to historical levels, which is supported by the healthy demand of the recently launched Schlage Encode residential lock that is ramping up in Q2.
Looking at the slide, Allegion was able to drive price realization and productivity actions, which more than offset the substantial inflationary pressures we experienced, I am pleased with the performance as we saw operating margin increase for the total Company and in each of the individual regions. In the first quarter, we delivered a 10% increase in adjusted EPS, driven primarily from operations. This performance highlights our continued focus on accelerating growth, margin improvement and driving increased shareholder value. Last, we are affirming our outlooks for 2019 revenue and EPS. We project total and organic revenue growth between 5% and 6%. From reported EPS, the range continues to be $4.60 to $4.75 per share and adjusted EPS remains at $4.75 to $4.90.
Please go to Slide number 5, and I'll walk through the first quarter financial summary. In Q1 Allegion delivered good top-line revenue performance. Revenue for the first quarter was $655 million, an increase of 6.8%, inclusive of 5.8% organic growth. Allegion also contributed to the top-line revenue expansion -- excuse me, acquisitions also contributed to the top-line revenue expansion offsetting the unfavorable currency impact. Americas led the way with organic growth of nearly 8% in the quarter supported by strong pricing and solid volume in the non-residential business.
The EMEA region saw modest organic growth and Asia Pacific total revenue was boosted by the Gainsborough acquisition completed last year. Adjusted operating margin increased by 10 basis points aided by price and productivity, more than offsetting significant inflation. The businesses continue to focus on driving price realization products -- productivity savings to combat inflationary pressures. Adjusted earnings per share of $0.88 increased $0.08 or 10% versus the prior year. As mentioned, the increase was driven primarily by operational performance, reduced share count and a slightly lower tax rate with the other income providing the small benefit to EPS growth. Year-to-date available cash flow is down approximately $6 million, the decrease is related to increased working capital and higher capital expenditures that were offset slightly by increased earnings.
Please go to Slide 6. When Allegion was founded, we put together a sound strategy, values and strategic pillars for our Company and they have allowed us to deliver industry-leading results, including industry-leading organic growth and operating margins. As we move into the next five years, we made some nice adjustments to the strategy. In March, we shared our refreshed corporate strategy with you. Our vision of seamless access and a safer world is aligned with electronic trends and security and access. It it also recognized the enhanced capabilities of technology add of Edge devices and our unique ownership of the opening to provide layers of authentication and enhanced safety to increase human productivity. We believe the five strategic pillars Allegion has laid out are the foundation for our future.
Our pillars include, expansion in core markets. We continue to broaden the core business through channel relationships, digital demand creation and leading products. Being the partner of choice delivering seamless access means we are intent on looking beyond our walls and leveraging our partners and ecosystems to drive growth, which includes using open platforms that integrate well with others. Drive new value and access, our innovation will focus on the user experience with access and working with partners to create unique solutions that increase their safety and speed-up their productivity. We are also intent on bringing new products to the market faster through modular, global, scalable platforms.
Capital allocation. Allegion will continue to take a disciplined and flexible approach to capital deployment, one that spans organic investments, acquisitions and shareholder distributions to optimize shareholder returns. And last, enterprise excellence. As you have seen in our Q1, our ability to drive results through productivity and continuous improvement is a strength of our Company. Allegion is committed to create value with excellent customer experience and with a culture of safety, health and employee engagement. Access has been a part of our Company's history for over 100 years and seamless access will define our Company going forward.
Patrick will now take you through the financial results, and I'll be back to discuss our full year 2019 outlook.
Patrick S. Shannon -- Chief Financial Officer and Senior Vice President
Thanks, Dave, and good morning, everyone. Thank you for joining the call this morning. If you would, please go to Slide number 7. This slide depicts the components of our revenue growth for the first quarter. I'll focus on the total regional results and cover the regions on their respective slides.
As indicated, we delivered 5.8% organic growth in Q1, this performance reflects another strong quarter in the Americas region, which included 7.6% organic growth led by the non-residential markets and returns on our channel initiatives. Pricing in the quarter was strong at 2.1%. The Company will continue to take necessary pricing actions to help mitigate the impact of ongoing inflationary pressures. Also during the first quarter, acquisitions contributed more than 3% growth offsetting the substantial currency headwinds we experienced.
Please go to Slide number 8. Reported net revenues for the first quarter were $655 million. As stated earlier, this reflects an increase of 6.8% versus the prior year, up 5.8% on an organic basis. Adjusted operating income of $112.1 million increased nearly 8% over the same timeframe from last year. Adjusted operating margin of 17.1% increased 10 basis points. Price realization of productivity actions outpaced inflation, which contributed to the operating income increase and solid volume leverage contributed to the margin expansion. Headwinds to margin performance included incremental investments which had a 40 basis point impact on adjusted operating margins and regional mix driven by acquisitions. Each of the region saw expansion in operating margin, which offsets the corporate expense related to deferred compensation plans due to favorable financial markets and accelerated vesting of stock-based compensation for retirement eligible employees. The incremental costs associated with deferred compensation plans were offset in other income, below operating income such as it had no impact on earnings per share.
Please go to Slide number 9. This slide reflects our earnings per share reconciliation for the first quarter. For the quarter of 2018, reported earnings per share was $0.75. Adjusting $0.05 for the prior year restructuring expenses and costs related to acquisitions, the Q1 2018 adjusted EPS was $0.80. Operational results increased earnings per share by $0.09 as favorable price, operating leverage on incremental volume and productivity more than offset inflationary impacts and unfavorable currency. Favorable year-over-year share count drove another $0.01 as we executed more than $63 million of share buyback in the quarter. The impact of incremental investments in the quarter was a $0.02 reduction. These incremental investments are for new product development, channel strategies and demand creation spending. Collectively, these incremental investments enable Allegion to accelerate growth, particularly in electronics.
The combination of interest expense, other income, non-controlling interest and tax rate offset each other to have no impact on year-over-year earnings-per-share growth. This results in adjusted first quarter 2019 earnings per share of $0.88, an increase of $0.08 or 10% compared to the prior year. Lastly, we have a $0.04 per share reduction for charges related to acquisitions and restructuring. After giving affect to these onetime items, you arrive at the first quarter 2019 reported earnings per share of $0.84.
Please go to Slide number 10. First quarter revenues for the Americas region were $475.3 million, up 8.2% on a reported basis and 7.6% organically. The organic growth was driven by low double-digit increase in the non-residential business. Pricing was strong in the Americas region, coming in at 2.6% in the quarter. While the non-residential business grew nicely, the residential business was essentially flat in the quarter when compared to Q1 of last year. Electronics growth still exceeded total growth in the Americas and came in at nearly 10%. Americas adjusted operating income of $123.1 million increased 8.5% versus the prior year period, and adjusted operating margin for the quarter increased 10 basis points. The increase in adjusted operating margin was driven primarily by volume leverage. Additionally, price and productivity exceeded the significant inflationary pressures observed in the region and contributed to the operating income increased. Incremental investments were a 30 basis point drag on margins.
Please go to Slide number 11. First quarter revenues for the EMEIA region were $142.9 million, down 4.9% and up 1.7% on an organic basis. The organic growth was driven by pricing and favorable volume in our SimonsVoss and Interflex businesses offsetting weakness in Southern Europe. Total revenue growth was reduced by significant currency headwinds. EMEIA adjusted operating income of $11.7 million increased 30% versus the prior year period. Adjusted operating margin for the quarter increased 220 basis points driven by price and productivity exceeding moderate inflation. The region also saw volume leverage and favorable mix, which partially offset currency pressures. Incremental investments were a 30 basis point headwind operating margin.
Please go to Slide number 12. First quarter revenues for the Asia Pacific region were $36.8 million, up 55% versus the prior-year. Organic revenue declined 2.2% driven by an internal revenue transfer for $1.5 million to the other regions. Total revenue growth was driven by the Gainsborough acquisition, which increased revenues in the region by more than 63%. Foreign currency was a significant headwind for the quarter, reducing revenue by nearly 6%. Asia Pacific adjusted operating loss for the quarter was $0.7 million, an improvement of $0.3 million with adjusted operating margins improving 230 basis points versus the prior year period. Similar to the other regions, the price, productivity, inflation dynamic was positive in the region and the Gainsborough acquisition was accretive to operating margin in the quarter.
Please go to Slide number 13. Year-to-date available cash flow for the first quarter of 2019 was negative $24.9 million, which is a decrease of $6.1 million compared to the prior year period. The decrease is driven by higher working capital requirements and increased capital spending, partially offset by higher net earnings. Working capital as a percent of revenues increased slightly in the first quarter, while the cash conversion cycle was down. As always, we remain committed to an effective and efficient use of working capital. We will continue to evaluate opportunities to minimize investments in working capital and increase available cash flow. Lastly, we are affirming our full-year available cash flow outlook of $430 million to $450 million.
I will now hand the call back over to Dave for an update on our full year 2019 outlook.
David D. Petratis -- Chairman, Chief Executive Officer and President
Thank you, Patrick. Please go to Slide number 14. As noted on the slide, we are affirming our revenue outlook. The consolidated outlook for total organic revenue remains at a range of 5% to 6%. In the Americas, we see continued positive fundamentals in our non-residential verticals led by institutional markets which we believe will continue to be strong throughout 2019. We expect the general trend toward electronic products to continue and we are positioned to take advantage of this trend.
In the EMEA region, we expect to strengthen our electronic businesses led by SimonsVoss and Interflex to more than offset weakness is that we've experienced in Southern Europe. However, total revenue will be negatively affected by currency headwinds. In Asia Pacific, we continue to see healthy growth in China with softening markets in Australia and New Zealand. The total revenue growth reflects the full year impact of the Gainsborough acquisition which has another quarter before we pass the anniversary date. We are also affirming our earnings per share outlook with reported EPS at the range of $4.60 to $4.75 per share, and adjusted EPS to be between $4.75 and for $4.90. This represents adjusted EPS growth of approximately 6% to 9%.
As Patrick stated, we are also affirming our cash flow outlook in $430 million to $450 million. The outlook assumes no change in the previously provided investment spend of approximately $0.15 per share. The full year adjusted effective tax rate continues to be approximately 16% with an anticipated higher rate in the first half of the year than in the second half. We're updating our outlook for outstanding diluted shares to approximately $95 million, reflecting the buyback activity completed in Q1.
Please go to Slide 15. As a summary of Allegion Q1 performance, total revenue grew nearly 7%, organic revenue grew almost 6%, adjusted operating margins were up 10 basis points and we are up in all regions. Adjusted EPS saw a 10% growth in the quarter. Access has been part -- an important part of our past and will be more important part of the future as we connect the world through seamless access and smart devices.
Now, Patrick and I will be happy to take your questions.
Questions and Answers:
Operator
Thank you. We will now begin the question-and-answer session. (Operator Instructions) And today's first question comes from John Walsh with Credit Suisse.
John Walsh -- Credit Suisse -- Analyst
Hi, good morning.
David D. Petratis -- Chairman, Chief Executive Officer and President
Good morning, John.
John Walsh -- Credit Suisse -- Analyst
So, I guess, maybe a first question here around electronics, they're near almost 10% growth. I think you've been talking about sustaining a mid-teens type growth rate on an annual basis. You have another quarter here of a high-teens comp. How should we think about the cadence and maybe a little bit underneath that number between residential and non-residential would also be helpful as well.
David D. Petratis -- Chairman, Chief Executive Officer and President
I would say, continue your cadence or in terms of mid-teens growth for our electronics businesses. As I've said in the Investor Day, our industry was going to do well with this transformation over the next decade. I feel good about the business with the launch of Encode, our partnership with Ring, the conversion of Lennar, who is leading electronics from launch. We see that the adoption continues to be strong. We have a strong pipeline of new products and partnerships. When I see the 10% growth in the quarter, there was some work behind the scenes that we conducted in the channel that I think took some steam out of our sales, but will help us accelerate as we go forward.
John Walsh -- Credit Suisse -- Analyst
And I guess maybe can you elaborate on those actions in the channel a little bit?
David D. Petratis -- Chairman, Chief Executive Officer and President
I would describe as this. With the advent and growth of e-commerce, it can be at times a little bit of the wild west. And we went in and buttoned-up some channel partners that will help us to drive price realization and growth in the marketplace.
John Walsh -- Credit Suisse -- Analyst
Got you. And then, maybe just one quick one here. Nice to see the price and productivity net would be a 60 basis point contributor year-on-year. How should we think about that cadence as we go through the year? Does that actually pickup?
David D. Petratis -- Chairman, Chief Executive Officer and President
So as we commented earlier, well, first of all was very pleased with the performance in the quarter. It's good to see us turn the quarter on the price productivity inflation dynamic. As you recall, last year, every quarter were little bit underwater. So we turned positive this year, particularly across all regions, so we're very pleased with the performance as it relates to that. As we look forward during the course of the year, you would see a -- from a margin expansion continued improvement as we progress throughout the year with the margin improvement being more heavily weighted toward the back half the year, and that's when the comparisons on inflation become a little bit more easier, particularly as we look at input costs on steel and those type of things. So consider continued migration of margin expansion more heavily back-end loaded in the back half of the year.
Operator
Thank you. And the next question comes from Joshua Pokrzywinski with Morgan Stanley.
Josh Pokrzywinski -- Morgan Stanley -- Analyst
Hi good morning, guys.
David D. Petratis -- Chairman, Chief Executive Officer and President
Good morning, Josh.
Josh Pokrzywinski -- Morgan Stanley -- Analyst
So I guess thinking back on 1Q, it seems like every Company we've heard from so far has had some mix of inventory and whether discussions. So just wondering as it pertains to residential, where the mechanical side looks like it was probably a little bit weaker. Anything that you saw from weather or channel destocking that makes that kind of a less of a trend line and something you can accelerate or at least improve a little bit from here?
David D. Petratis -- Chairman, Chief Executive Officer and President
I would say, first, look at the macro. We see the renovation and retrofit softened in in the quarter. I think you see overall starts down or at least softened, not surprising, I think, again. Third, there are some pretty big players in retail that have year-ends that tends to wind down the inventory. And then, it was a pretty tough winter. I don't like to point at that, in res, north of MasonDixon line people generally don't go out and replace their front door locks when it's below zero. So I think there was a lot of things working in that. Overall, I think we performed pretty well in the quarter with some of those stressors.
Josh Pokrzywinski -- Morgan Stanley -- Analyst
Got it. That's helpful. And then just on the price mix in Americas. I think that's a high watermark that we've haven't hit in some time. Just understanding that mix was probably particularly solid given resi versus non-resi and and electronics, which probably could have been a little bit better to your earlier point. How should we think about how that paces through the rest of the year? Should that price mix number start to moderate as you lap some of the increases last year?
David D. Petratis -- Chairman, Chief Executive Officer and President
Yeah, so you would expect to see kind of a similar type of dynamic maybe for Q2. And then, as you said, the price increase implemented last year, beginning of Q2, so that lapse, beginning, presumably beginning of Q3, so that laps in Q3.And the price increase that we're going out with this year isn't of the same magnitude. And so therefore, the price increase year-over-year becomes less in the back half of the year.
Josh Pokrzywinski -- Morgan Stanley -- Analyst
Got it. That's helpful. Thanks, Dave, thanks, Patrick.
Operator
Thank you, and the next question from Julian Mitchell with Barclays,
Julian Mitchell -- Barclays -- Analyst
Thank you, good morning.
David D. Petratis -- Chairman, Chief Executive Officer and President
Good morning.
Julian Mitchell -- Barclays -- Analyst
Maybe just the first question on your residential business. So as you said, this is the second quarter in a row of sort of no growth really, a lot of issues in the broader market and also whether. Maybe just update us on what you're expecting your residential business to grow in 2019? And what sort of impact do you think we could see from electronics products within that? And whether there has been evidence of demand destruction from price increases?
David D. Petratis -- Chairman, Chief Executive Officer and President
So we don't split out the overall residential growth. I think as you look at the macro on new built, I think we're going to continue for single-family in North America are around 850, a relatively flat market. I think multi-family continues to be robust, that surprises me, but people are moving into the inner cities. These projects tend to be more price-competitive, especially on the traditional mechanical hardware. We do like the trend that these are becoming more electronic. We have over the last two years, had a focused effort around this and we think it will give us some lift. The strength of our Company continues to be on the retrofit side of this. So I like our opportunities as we go into the res and it will advance -- our growth will advance beyond what we saw in Q1.
Patrick S. Shannon -- Chief Financial Officer and Senior Vice President
Let me just add too on the price perspective as it relates to residential. It had been a little choppy, not in the sale to price to the distribution channel but more on the rebate side and discounts and those type of things. We actually had positive price realization in Q1 this year as it relates to residential. So there is no deterioration, if you will in the pricing dynamics and what's going on in the marketplace, and believe we continue to hold our own, particularly as it relates to some of our new electronic products and I think we'll be -- continue to be extremely competitive there.
Julian Mitchell -- Barclays -- Analyst
Thanks, and then my second question, just on those Americas margins. It was good to see the slight increase year-on-year in the first quarter. Based on your comments around productivity efforts in the margin bridge and also acquisition impacts, should we see that, that margin expansion accelerates through the year and what kind of headwind from M&A on margin do you expect in Americas?
David D. Petratis -- Chairman, Chief Executive Officer and President
So we would continue to see expansion throughout the course of the year, again, the back half will be wider gap there and more favorable than Q2. M&A, as we've indicated, historically, the businesses we acquired, we like very much. We will continue to drive improvement as they become part of the Allegion business operating system and continue to drive synergies on both the top end of the cost side. Those businesses though, when we acquire, had a lower-margin profile. And therefore, by nature they're dilutive to the Americas margin. But we'll continue to get improvement in those businesses and that will help margin performance year-over-year comparisons going forward.
Operator
Thank you. And the next question comes from Deepa Raghavan with Wells Fargo Securities.
Deepa Raghavan -- Wells Fargo Securities -- Analyst
Good morning. So my question is on the guide year 2019. There is not much we can glean from this unchanged full year guide. There seems to be some cross-winds. Europe is softer obviously, North America holding better than we thought. Asia maybe OK there. But let me ask you this way does the guide at midpoint, say $4.82 EPS or organic growth of 5.5% for the full year. Does that feel boasted now where you stand post Q1? Or is it just stable at this point in time versus what you were thinking prior?
Patrick S. Shannon -- Chief Financial Officer and Senior Vice President
Pretty stable, I would say, based on the performance, pretty much in line with what we were expecting. So therefore, you don't really see an uptick relative to the guide. So feel pretty good where we are, and our execution and basis of what Dave indicated the demand, particularly in institutional markets going forward, feel really good about that and feel like we've got good visibility to execute on our guidance for 2019.
David D. Petratis -- Chairman, Chief Executive Officer and President
Deepa, I would add to that. I'd just say confident now of what we see coming out of Q1. I go back 90 or 120 days ago, a lot of uncertainty about what was going to unfold in '19. And my message to the Street is confidence. We see good solid end markets, as I travel really globally, there's opportunity for Allegion. And as I think about the electronic convergence, I like what I see ahead in 2019.
Deepa Raghavan -- Wells Fargo Securities -- Analyst
Got it. My follow-on is on Q2. Is there any quirkiness either on year-on-year basis or sequentially or comp-wise we should be mindful of?
Patrick S. Shannon -- Chief Financial Officer and Senior Vice President
Nothing comes to mind out of the ordinary. Other than maybe below-the-line items, you're going to see some pressure as it relates to other income expense and the tax rate I believe was anticipated to be higher.
Deepa Raghavan -- Wells Fargo Securities -- Analyst
Got it. That's all I had. Thank you.
Operator
Thank you. And the next question is from David MacGregor with Longbow Research.
David MacGregor -- Longbow Research -- Analyst
Good morning, everyone. Congratulations on the quarter. Just looking at the Americas non-residential business, the low double-digit growth, is there any way you can separate out institutional versus commercial for us there?
David D. Petratis -- Chairman, Chief Executive Officer and President
We don't. I would say, as I look at our execution in those markets, we continue to perform at a high level. I think, that's reflected in the number. We see strength in the institutional especially around K Through 12 and college campuses. But as I look at those segments, I think we see the electronic trends that are driving us. Things like Overtur that we've rolled help us to better connect with specifiers and contractors to drive that growth. And I think fundamentally the market is strong and we're executing at a very good level.
David MacGregor -- Longbow Research -- Analyst
Okay, thanks for that. And I guess just a follow-up, just talk about the electronics business and the profitability there. Any notable change in terms of the profitability of that business. It sounds like maybe there were some investments this quarter in the residential electronics. But just how should we think about the profitability and then how you're thinking about that as it extends through the balance of the year?
Patrick S. Shannon -- Chief Financial Officer and Senior Vice President
So profitability really similar to prior years as we've indicated similar margin profile but a higher ASP, meaning more EBIT dollars. And so this whole front of electronics growth really positive for Allegion and we'll continue. There's nothing in the horizon that would suggest any margin deterioration relative to the new products we've introduced, similar margin profiles and we believe we can sustain that going forward.
David MacGregor -- Longbow Research -- Analyst
Patrick as the new product cadence accelerates, does that profitability improve or how should we think about that?
Patrick S. Shannon -- Chief Financial Officer and Senior Vice President
No. Similar margin profile.
David MacGregor -- Longbow Research -- Analyst
Okay.
David D. Petratis -- Chairman, Chief Executive Officer and President
As we think about that pipeline of new electronic products, our desire is to use design innovation, standardization of global platforms to be able to maintain the margin profile.
David MacGregor -- Longbow Research -- Analyst
Thanks very much.
Operator
Thank you. And the comes from Jeff Kessler with Imperial Capital.
Jeff Kessler -- Imperial Capital -- Analyst
Thank you. Thank you for taking my question. First question is, this year or the last year and year and a half, we've seen an acceleration in companies that have been doing, let's call it, enhanced card access, companies like you just mentioned like one, Identiv, but some of them compete with you in card access, some of them have things that are out -- actually outside of what you've been doing. Are you looking at expanding into that business a little bit further. And I'm not just talking about generic card access, I'm taking about card access that actually has -- that has permissions on it that gets in -- that has some maybe federal attachments to it.
I know you're mostly commercial, but there are other vertical markets that the entire access business gets involved with and brings in -- involves new technologies like audio over IT, things like that. So the question -- the bottom line question is, are there card access areas that interests you to expand the business in that area?
David D. Petratis -- Chairman, Chief Executive Officer and President
I think a couple of ways we think about that. Number one, with acquisition, ISONAS was part of that. We think we got some nice IP and capabilities. I think second partnerships, I am really excited with our venture group and potential partners and new technologies that walked through. And I think partnership is not a bad place to position. I also think edge devices will also be -- with layers of authenticity will be an important part of that equation to be able to drive access through cards and readers.
Jeff Kessler -- Imperial Capital -- Analyst
Okay. Quickly on Overtur. I'm just wondering if you're thinking about Overtur as a service, the fact that you can now have a collaborative capability that brings in a number of parties which really which -- really does, I think create some value, some value-added to your ability to bring a group of people to design something and help you get the product out faster. Is there a way to make that some type of a service or other parts of Allegion as service subscription -- subscription but, I would call recurring revenue subscription-based way to get involved in working with Allegion in some ways you perform. If something like Overtur becomes ubiquitous?
David D. Petratis -- Chairman, Chief Executive Officer and President
So the answer would be yes. However, our first priority is to make sure the user satisfaction and adoption is at the high level. So why would my answer would be yes? I think, if you think about a Institutional campus, a hospital, a K through 12 schools. The ability to digitally capture, access workflows and keep that updated is attractive to an operator of that hospital or college campus. Think about, if the overture, Overtur keeps those things current, it's not easy for a campus administrator to go out and access those multiple documents would be one example.
Another is, what's installed on that door as the potential is needed for a service in a variety of areas. So I'd say, we're trying to stretch our thinking of what the possibilities of digital systems like Overtur can mean to the business and I think it's partners positive opportunity as we go forward, Jeff.
Jeff Kessler -- Imperial Capital -- Analyst
Okay, thank you. I'm just kind of following-up. You have futurists who work with you and who are working inside you and I think there's a lot of things that they can think about right now with given the base the broader base of your products and if something like this were to get a higher, very high user rate you could probably move forward with a recurring revenue type program?
David D. Petratis -- Chairman, Chief Executive Officer and President
I hope all of our listeners will take a look at our Investor Day presentations and our view on seamless access. There's a great opportunities for us to redefine our industry and develop new ecosystems that will benefit Allegion in a variety of ways beyond Overtur and we're excited about it.
Operator
Thank you. And the next question comes from Josh Chan with Baird.
Josh Chan -- Baird and Company -- Analyst
Hi, good morning, Dave, Patrick and Mike.
David D. Petratis -- Chairman, Chief Executive Officer and President
Good morning.
Josh Chan -- Baird and Company -- Analyst
Good morning. My first question is on the non-res business into Americas growth is obviously very strong. Just wondering, you talked about visibility through the whole year. Just kind of -- could you give us some color in terms of what you're hearing from the channel or contractor backlogs or anything like that, that kind of lends you that confidence regarding growth for the rest of the year?
David D. Petratis -- Chairman, Chief Executive Officer and President
So contractor backlogs close to nine months, historically that's extremely healthy. I think we continue to see labor in the construction markets is tight. I think that continues to snowplough as you heard me say. I think the adoption of electronics continues to be an attractive trend. You get into the K Through 12 opportunity, bond issuance is on the rise. And the other one that, a little bit more sobering, the average age of the K Through 12 is 40 years old. And the need for upgrade in -- with the opportunity or driver around campus security is going to continue to be good for our business.
You moreover to healthcare, we see some softening in the big hospitals, but we see uptick around what we called medical offices and specialty clinics. There's a repositioning here but these medical clinics still drive the same complexity of code and specification products enhancements that we think drive growth. And for me as well, the commercial market continues to have legs, so we like the overall view, we think things like Overtur, our spec writing capability capability and then adding electronics bode well for 2019.
Patrick S. Shannon -- Chief Financial Officer and Senior Vice President
And then Josh, just as an add-on. Some of our leading indicators, so big code activities, specifications written those type of things. Very strong trend continues to be up. And normally, there is a lag obviously between the time you get those and when the products are put in place. So we feel really good relative to the market demand and the feedback we get from our customer base.
Josh Chan -- Baird and Company -- Analyst
Okay, thanks. Yeah, that's good to hear. And then my second question is on the buyback. It seems like the pace in Q1 was maybe slightly above what you normally do in Q1. So just wondering if buybacks are more of a focus this year then in the prior years?
Patrick S. Shannon -- Chief Financial Officer and Senior Vice President
Well, we indicated during our Shareholder Day, capital allocation is a key strategic pillar for the Company. As you know, we're in a really good financial position. Our balance sheet is the healthiest as it's been since then, with a two time debt to EBITDA. Cash flow will continue to increase as our business grows and expands, so we have a lot of optionality. And the key message is, we're going to deploy capital, put it to use for our shareholders to drive shareholder returns. Last year as you know, we were extremely busy in adding some really good businesses to the portfolio. We're still integrating those. Our pipeline from an M&A perspective remained active and busy.
We'll remain disciplined. But if we're not active in the M&A, we've always said, we would provide incremental shareholder distributions either through dividends or share repurchases. You saw the dividend increase executed in Q1. So we're more active now in share repurchase. We have available cash to put it to use and we'll continue to do so.
Josh Chan -- Baird and Company -- Analyst
Okay, great. Thanks for taking my questions.
David D. Petratis -- Chairman, Chief Executive Officer and President
Thank you.
Operator
Thank you. Our next question comes from Joe Ritchie with Goldman Sachs.
Joe Ritchie -- Goldman Sachs -- Analyst
Thank you. Good morning, guys.
David D. Petratis -- Chairman, Chief Executive Officer and President
Hi, Joe Ritchie.
Joe Ritchie -- Goldman Sachs -- Analyst
Yeah. Dave you've became a friend, my friends typically will refer to me by both names. I don't know why, but it's trade since I've been in -- since I've been in high school. Anyhow, going off on a tangent. The question I have is really regarding trends. So if we think about the first quarter, we've heard, like a varying degrees of trends throughout the quarter, because of weather, because of tariffs. And I'm just wondering, as you guys progress through the quarter, how did your trends either improve or decelerate as we move through the quarter?
David D. Petratis -- Chairman, Chief Executive Officer and President
I think there was a vulnerable flaw in the year that was called the government shutdown. I think, clearly as we went through the quarter, things got better. And it's always -- there is a hangover after the New Year. Things pick up, but felt good with the momentum. I felt better about our execution on price and productivity. We put up, I thought an aggressive 2019 plan with margin expansion and I was very pleased with our ability not only to put up good organic growth, but more pleased by our execution on the price and productivity side.
Joe Ritchie -- Goldman Sachs -- Analyst
But I guess, specifically though Dave, I mean, as we kind of progressed through March, does things get any better, do they get worse? Like how did things progress?
David D. Petratis -- Chairman, Chief Executive Officer and President
As we went through March, and it's normal with the sign of the ground things get better. That's happened for the last 38 years in my exposure
building products. And in my mind, it's just part of the spring routine, it gets better.
Joe Ritchie -- Goldman Sachs -- Analyst
Okay, and that's helpful. And if I could just kind of follow-on on your investment spending. I saw that you did $0.02 this quarter, still looking to do about $0.15 for the year. And so how does that -- Patrick, how does the cadence come through for the rest of the year on the investments? And perhaps maybe some color around the investments that you're doing for the rest of the year?
Patrick S. Shannon -- Chief Financial Officer and Senior Vice President
So obviously it's going to pick up here, I think more heavily weighted toward the back half of the year, which kind of matches our improvement and margin expansion. The incremental investments are same kind of criteria, new product developments or acceleration of products particularly around electronics. I feel like we're getting really good demand from those going forward. Channel development, continued investment in channel of underserved market opportunities around globe, we'll continue to do that. And then demand creation as related to trying to accelerate adoption centered around electronics. Those are kind of the three primary categories, all kind of front end loaded in terms of revenue driving growth and we'll continue to do that and again it will expand during the course of the year.
Operator
Thank you. And this concludes the question-and-answer section. I would now like to return the call to Mike Wagnes for any closing remarks.
Michael Wagnes -- Vice President of Investor Relations and Treasurer
We'd like to thank everyone for participating in today's call. Please contact me for any further questions and have a great day.
Operator
Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Duration: 49 minutes
Call participants:
Michael Wagnes -- Vice President of Investor Relations and Treasurer
David D. Petratis -- Chairman, Chief Executive Officer and President
Patrick S. Shannon -- Chief Financial Officer and Senior Vice President
John Walsh -- Credit Suisse -- Analyst
Josh Pokrzywinski -- Morgan Stanley -- Analyst
Julian Mitchell -- Barclays -- Analyst
Deepa Raghavan -- Wells Fargo Securities -- Analyst
David MacGregor -- Longbow Research -- Analyst
Jeff Kessler -- Imperial Capital -- Analyst
Josh Chan -- Baird and Company -- Analyst
Joe Ritchie -- Goldman Sachs -- Analyst
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